A week ago, news broke out that Dore Entertainment Co. Ltd., a junket operating VIP rooms at Wynn Macau, was victim to an internal heist amounting to US$258m. Although Wynn attested that this would not have a direct financial impact on Wynn Macau, this latest hit however added to the multiple problems already affecting junkets and their decreasing VIP output in Macau casinos. According to Las Vegas Sands president, Rob Goldstein, “the junket model – for now – is broken”, further adding, “hard for me to see a catalyst to make VIP get strong again.” With that said, what exactly has been causing the VIP gambling sector to decline in Macau and what solutions are being implemented in order to slow down this trend?
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Macau's gaming revenue
Numbers have shown that since June 2014, Macau’s gaming revenue has been experiencing a constant decline with the biggest impact felt in the VIP sector. Many believe that China’s anti-corruption plight and Beijing’s tighter measures on junket operations and money movement were the initial causes for the decline. Revenues started to go down because junkets were having a harder time bringing in their high rollers as the war against gambling targeted not just corrupt officials but both VIP Chinese customers and junkets as well.
Junkets operators in jeopardy
Another detrimental factor was the US $1.3b heist of the Kimren Group last year. This eventually led to numerous investigations of junket operators scrutinized for money laundering. Many shaken junkets were forced out of business due to investor pullout. Governmental laws such as new restrictions on entry visas and an upcoming smoking ban in VIP rooms also rubbed salt to the situation.
Then now, with the recent heist by a junket cage manager at Wynn Macau, it seemed that the continued challenges surrounding junket operators were only placing their roles in Macau casinos that much more in question. With no signs that the government is easing up just yet, and with VIP revenues continuing to plummet, it is clear that the junket model is in jeopardy in Macau. Casinos need to find a way to restructure because junkets are no longer able to fulfill their quotas. And the bottom line is, revenues must somehow go up. Within the past two months, many Macau casinos have opted to close VIP rooms thus sending junket operators to the rail. In a previous article we noted that in 2013, casinos in Macau paid US $13b in commissions to junket operators. This gives a clear indication of how much more casinos can earn if a new model based was created without the help of junkets.
But this is going to be quite a challenge because not only does the law still restrict the amount of money one can bring in to Macau from China but also because many casinos are opening up in Asia, with less restrictions, giving junket operators new territories to attract their high rollers (Read more: Chinese VIP are no longer in love with Macau). Macau casinos are hopeful however as they look to develop the mass market, seeking out cleaner business models, and establishing relationships with high rollers on their own. It is important to note that despite this problem, Macau’s gaming revenue is still way ahead of Las Vegas and will most likely remain as the leading gaming hub for quite some time.